Oil industry opposes raising liability damages cap

Oil industry representatives say drilling operations in the Gulf of Mexico could be economically threatened if the liability damages cap is raised for offshore spills.

"Precipitous changes to the Oil Spill Liability Trust Fund could undermine our nation's economic and energy security by making oil and natural gas operations in the Gulf of Mexico uninsurable by all but the largest companies," said Jack Gerard, president and chief executive officer of the American Petroleum Institute, in a release.

Several Democratic lawmakers are pushing to raise the cap from $75 million to $10 billion to cover the costs of containment, cleanup and economic damages incurred by coastal businesses.

Sen. Lisa Murkowski (R-Alaska), who supports increasing the cap amount, objected to a Democratic attempt Thursday to pass the bill quickly, arguing that a $10 billion cap could force small and independent oil operations out of business.

"Congress should endeavor to preserve the trust fund's viability without undermining the oil and natural gas industry's ability to insure capital investments," Gerard said.

Initial economic analysis shows that mid-size operations would have trouble insuring their oil wells and that even if insurance were available, "hypothetical premium increases could raise the total unit costs of exploration and production in the Gulf of Mexico by 25 percent, making many fields uneconomical to produce," he said.

Production in the Gulf represents 30 percent of all U.S. crude oil production, according to Gerard.

Existing law holds companies like British Petroleum accountable for paying all costs associated with the spill and up to $75 million in economic damages. Those caps are waived in instances of gross negligence, willful misconduct or violation of federal regulations, Gerard said. Businesses affected by the spill also can pursue damages in state court, which aren't limited by a cap, he said.

"Any necessary changes in the trust fund should be determined after there is a clear sense of the resource needs arising from this incident and should be thoughtfully considered with an opportunity for all stakeholders to be heard," Gerard said.

So far the spill has cost BP $450 million, according to a statement released Thursday.